I don't think human affairs are random. But, we're specifically talking about the financial markets here so... I'd try to serve the needs of the participants.
So if I believe that prices are random, then the only bet I can be sure of is the unlikelyhood of consecutive hits. In a 50/50 dice, what's the probability of 10 head in a row? 15? 20? The longer the streak, the lesser the probability. ex: 15 streak is about 1.5% https://www.omnicalculator.com/statistics/coin-flip-streak But saying you're just going to double your bet like a martingale system after every loss is never going to work out since you have limited capital or exchange limits So you do the next best thing, you scale in. I don't care what entry rules you pick, you add a scale in process into that strategy, you'll have a higher hit rate (assumming a 1:1 RR). The trick is to manage your trading size so that your scalein can withstand those long xR streaks (trends). It's all about managing your average entry. You do it too much too soon, you'll blow up. Smaller incremental scale in, breakeven stops, high volume trading periods should all help minimizing the risk of blow up. So like I said you can manage your risk like a poker player. You split it into various pools and go all out into each one (you don't just go all in with your stake in one session at a table). Probablity speaking you will have about 40% chance of doubling up if your win rate is 85% (using 2% risk), or 95% chance of doubling up with 90% win rate. http://www.beatingbonuses.com/calc_streak.htm You still need a decent amount of capital, but I think with micros you can pull it off. At least I think so, that's what i'm doing
So, because a random function can resemble a price chart your assumption is that a price chart is random as well? I would question that assumption. Further, I would add that I'm sure quantitative traders doesn't rely on charts/chart formations for their predictions. They could do, of course. But I'm saying there's more to it than meets the eye. I strongly believe that market's aren't random as every price moves happen for a reason. But that doesn't mean that's easily monetized or that you can easily forecast/anticipate where it's going.
By the way, as you seem to be interested in quantitative trading, please check out this old two part articles series. It was a good primer for me back in the day for a way to trade without charts. Some good stuff here, IMO. Maybe you'll find the time to do a back-test for the most recent years. https://www.trade2win.com/articles/766-developing-trading-strategy https://www.trade2win.com/articles/768-developing-trading-strategy-part-2-a
It's random bro. You're just seeing shapes in the clouds, in context of traditional technical analysis.
You should look at the differences in time series when variance is non-stationary. In actual markets, the variance of anything is never stationary. In fact, in equities, indexes, etc., variance is trading during RTH... Frequentist statistics assumes the existence of parameters. If you are summing a running coin flip, then the variance (of the sum) is stationary. If the magnitude of the movement is 'reactive' (at all) to what the sum has done, or is doing, then it is a very different situation. This is why back-testing is such a rats nest. To get estimates for a probability, you need data from a distribution involving stationary parameters. If the variance is, itself, random, then you can still work with it, but if the variance is the outcome of speculation, well... This is why the smarties are looking at differentials of indexes, indexing vol, spreading prices/options to get implied information, using NYSE internals, and stuff like the PREM/fair value (ES/SPX basis differential), yield curve and it's implieds, etc. Micro-structure, pricing models, and understanding market-making fundamentals is the solution. Also have to know shit like what Bridgewater is doing. Those guys are beasts. Understanding the double auction system, how listed order flow is being front-run by the colo bros, LOL. Seriously, I've said it a million times, but go look at the NYSE disseminated order-flow market internal for the dow components, TIKI. Program trading, the PREM trading, and colocated flow algos are a big deal. And they are definitely not randomly punting and scaling into losers.
Good Morning hilmy83, You are correct, it is all based on what you want to do 1. Enter position and keep scaling in over and over, and you will win alot, until you scale in holding XX ES contracts, take a big loss and give it all back . 2. Enter position with fixed profit target and fixed stop loss, battle to stay out of drawdown, hope to win by guessing correctly. and on and on and on and on and on all the way to Option number 100. Gotta pick one and stay consistent with it forever, or your brain will never be settle, you keep trying 1000 methods, and get no where. What is important is knowing you are guessing trader. And this is good enough, we got know edge in trading. Just doing the best we can. I particular like scalping the ES as much as I can per day. Nothing much else I can do. The answer is not in book, video course, trading course. No-one can help me. Just the ES chart I actually tried the ES scaling in method. Man, I was having fun, until I got caught in a position holding like 20 ES contracts, and blew up my account and gave all profits back. lol
Hello Laissez Faire, @hilmy83 is correct, if you are trading without confirmed trading edge, all trading wins and losses is random.
No it's not. Just because you can't fully understand the dynamics on play does not make the price movement random. In fact, the true edge in trading ( even day trading ) is understanding what's moving markets and stocks longer term. Often I have a really good idea where a stock is going at some point, but it can actually take hundreds of different paths to that point. Still not random, fundamentals take over at some point. This is why I use technicals on a longer term basis because those levels tend to have more meaning. For day traders, longer term at least dictates what assets are the best candidates to trade on the day. I will say though that shorter term technicals serve one important purpose. They tell you what other technical traders are thinking. Problem is, many bigger players know how to game that dynamic.